Tiered Intermediation in Business Groups and Targeted SME Supports

47 Pages Posted: 11 Jan 2021

See all articles by Yu Shi

Yu Shi

International Monetary Fund (IMF)

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

Wu Zhu

University of Pennsylvania

Date Written: October 30, 2020

Abstract

Using business registry data from China, we show that internal capital markets in business groups can play the role of financial intermediary and propagate corporate shareholders’ credit supply shocks to their subsidiaries. An average of 16.7% local bank credit growth where corporate shareholders are located would increase subsidiaries investment by 1% of their tangible fixed asset value, which accounts for 71% (7%) of the median (average) investment rate among these firms. We argue that equity exchanges is one channel through which corporate shareholders transmit bank credit supply shocks to the subsidiaries and provide evidence to support the channel.

Keywords: Tiered Intermediation, Business Groups, Equity Investment, Investment, Bank Credit Shock

JEL Classification: G23, G32

Suggested Citation

Shi, Yu and Townsend, Robert M. and Zhu, Wu, Tiered Intermediation in Business Groups and Targeted SME Supports (October 30, 2020). Available at SSRN: https://ssrn.com/abstract=3722173

Yu Shi

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Wu Zhu (Contact Author)

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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